Agricultural Economics Department
Date of this Version
8-13-2008
Abstract
Nebraska is in violation of the Republican River Compact Settlement for 2006 by an estimated 41,430 acre-feet (AF) of water. Kansas has claimed damages of $72 million for Nebraska’s settlement violations, has demanded irrigation cutbacks of nearly 50 percent and has initiated formal arbitration proceedings under the settlement for resolving compliance disagreements. The July 9, 2008 Cornhusker Economics newsletter suggested that Kansas was entitled to only half the water and money it claimed. Kansas has proposed that Nebraska ultimately needs to shut down all wells within 2.5 miles of the Republican River and tributaries with all irrigation wells installed after 1990, or 515,000 irrigated acres. To consider possible outcomes to the current Republican River impasse, we will assume that to assure long-term compact compliance, Nebraska needs to reduce irrigation by 500,000 acres, or to reduce ground water pumping to achieve the same water usage effect.
In the 2008 Land Values Report, Dr. Bruce Johnson (Professor, Dept. of Agricultural Economics, University of Nebraska-Lincoln) estimates that the difference between irrigated and non-irrigated land in the Republican River Basin is around $1300/acre. (There is lots of variation but we are interested only in a rough approximation.) So, assuming the State of Nebraska decides to reduce irrigation by purchasing and retiring Republican Basin ground water rights, the cost would be 500,000 acres times $1,300/acre = $650 million (again, this is a ballpark estimate). If the purchase were spread out over 10-20 years, the annual costs would be much lower than having to do it in a single year. Possibly water retirement costs could be lowered if e.g. Nebraska paid irrigators not to irrigate until crop prices (and irrigated land prices) declined, and permanently retired the water rights when prices declined.
Comments
Published in Cornhusker Economics, 8-13-08. Produced by the Cooperative Extension, Institute of Agriculture and Natural Resources, Department of Agricultural Economics, University of Nebraska – Lincoln. http://www.agecon.unl.edu/Cornhuskereconomics.html